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Dissecting the Numbers for Avis Budget Group, Inc. (CAR) and Motorola Solutions, Inc. (MSI)

Avis Budget Group, Inc. (NASDAQ:CAR) shares are down more than -36.51% this year and recently decreased -5.94% or -$1.76 to settle at $27.86. Motorola Solutions, Inc. (NYSE:MSI), on the other hand, is up 43.99% year to date as of 12/04/2018. It currently trades at $130.08 and has returned 0.60% during the past week.

Avis Budget Group, Inc. (NASDAQ:CAR) and Motorola Solutions, Inc. (NYSE:MSI) are the two most active stocks based on recent trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect CAR to grow earnings at a 15.80% annual rate over the next 5 years. Comparatively, MSI is expected to grow at a 15.34% annual rate. All else equal, CAR’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 16.09% for Motorola Solutions, Inc. (MSI). CAR’s ROI is 4.90% while MSI has a ROI of 32.70%. The interpretation is that MSI’s business generates a higher return on investment than CAR’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. CAR’s free cash flow (“FCF”) per share for the trailing twelve months was -10.26. Comparatively, MSI’s free cash flow per share was +1.21. On a percent-of-sales basis, CAR’s free cash flow was -8.97% while MSI converted 3.1% of its revenues into cash flow. This means that, for a given level of sales, MSI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. CAR has a current ratio of 1.10 compared to 1.20 for MSI. This means that MSI can more easily cover its most immediate liabilities over the next twelve months.

Valuation

CAR trades at a forward P/E of 7.33, a P/B of 4.21, and a P/S of 0.24, compared to a forward P/E of 17.11, and a P/S of 3.05 for MSI. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CAR is currently priced at a -32.46% to its one-year price target of 41.25. Comparatively, MSI is -5.02% relative to its price target of 136.95. This suggests that CAR is the better investment over the next year.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CAR has a beta of 1.81 and MSI’s beta is 0.45. MSI’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. CAR has a short ratio of 6.41 compared to a short interest of 4.68 for MSI. This implies that the market is currently less bearish on the outlook for MSI.

Summary

Motorola Solutions, Inc. (NYSE:MSI) beats Avis Budget Group, Inc. (NASDAQ:CAR) on a total of 10 of the 14 factors compared between the two stocks. MSI is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, MSI has better sentiment signals based on short interest.

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